In the Spotlight

News & Features
On the Bandwagon
By Mark Zdechlik
August 9, 1999
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Only a small percentage of the country's population has ever bought anything over the Internet. But with the number of Americans gaining access to the World Wide Web rising fast, analysts confidently predict e-commerce will dramatically change retailing. Almost every day, another major retailer unveils plans to open up shop on the Internet. This month, one of the nation's largest retailers - Dayton Hudson - plans to dramatically increase its Internet presence.

IN A LARGE COMMON AREA of one of the nation's retail mecca's, Bloomington's Mall of America, an unscientific sampling of shoppers provides a surprisingly accurate picture of how Americans feel about using their computers to shop.

And so far, the hype over e-commerce dramatically outweighs the reality of online retailing. Despite the almost unbelievable value investors have been placing on e-commerce companies, hardly anything is being sold retail over the Internet.
Vogel: People are just still not comfortable with it in terms of the security issues.
Boston Consulting Group Director James Vogel has been studying online shopping trends for numerous Fortune 100 companies wrestling with their online futures. Vogel estimates, only about one in 10 Americans has ever bought anything over the Internet. That online revenue by North American retailers last year totaled less than $15 billion. A lot of money, to be sure, but only about a half of a percent of all retail revenue last year.
Vogel: The retailers haven't done a real good job in getting the message out to people that they have this new and exciting way for people to buy that can be much more convenient than traditional approaches for a wide variety of products.
But Vogel says the Internet is emerging as a major force in retailing.
Vogel: The market is growing at an incredible rate. It's quite staggering with growth rates of 150 to 200 percent and that's astounding.
Vogel predicts Internet sales this year will total more than $35 billion. So far, he says, the most successful online categories are financial services, especially stock trading, in addition to travel products, auctions, and books.

Although less than half of all Americans have easy access to computers, retail analyst Dean Ramos of George K. Baum and Associates says that's changing rapidly as the cost of computers decreases and as computers become easier to use. As people become more comfortable with Internet security issues, Ramos expects the Web will be as powerful a force on shopping as the emergence of the mall 50 years ago. And he says as well known major retailers make their way onto the Internet they'll bring their customers with them.
Ramos: We've seen some retailers that have had a great couple years business or a great three year run start to venture onto the Internet. They're doing so in a real conservative way; not doing so because they see a real downturn in their business currently, but really more because they're afraid they'll miss something if it happens.
Not to mention, Ramos says, is pressure Wall Street is putting on successful retailers not to miss out on e-commerce opportunities. Take the nation's sixth-largest retailer Minneapolis based- Dayton Hudson, the parent company of Target, Dayton's and three other department store chains. Although Dayton Hudson has maintained several Web sites over the past couple of years, only now is the company unveiling a major e-commerce effort through the re-launch of
Bonner: We don't unnecessarily need to be first to be best in this space.
Bridgit Bonner is the Vice President for Strategy and Technology for E-commerce at Dayton Hudson.
Bonner: Our guests have high expectations of us in our brick-and-mortar brands. Now that we have watched other e-commerce players get online, we've learned a little bit more about the expectations guests have, and we think we understand better what the formula is for success.
For Dayton Hudson, Bonner says the formula means making every effort on the Web to duplicate strengths of traditional stores. Focusing on customers service, careful product selection and creating a comfortable, well organized shopping environment.
Bonner: Our plans are not to put the whole store online.
Bonnner says by Christmas, will feature about 1,500 products. No so-called commodity items like toilet paper or toothpaste, instead e-shoppers will find things like housewares, towels and home-decor merchandise. And, Bonner says, in addition to selling over the Internet, Dayton Hudson will use its Web sites to continually promote its stores. About a year an a half ago Dayton-Hudson bought Minnesota Public Radio's for profit-catalogue operation, Rivertown Trading. The more than $100 million investment was intended to position Dayton Hudson to fulfill Internet orders.

Walmart is also preparing to increase its online presence. It has contracted with the catalogue giant "Fingerhut" to handle its online sales.

As established retailers like Target and Walmart increase their Internet presence, retail analyst Dean Ramos says their merchandising expertise will likely present a significant challenge to start up on line retailers whose credentials have much more to do with raising investor interest than taking care of customers.
Ramos: I think there's a general sense that it's a lot easier than it is. The perception is now that anything having to do with the Internet will be fabulously successful and we're validating that with the fact that many of the stocks are going up to fabulous levels. I think it will prove to be much harder to be successful in that channel just as it has been in any other retailing channel The retailing strengths, the merchandising strengths the service which have historically been present in retail and defined the winner and loser will be the ones that define the winner and losers on the Internet.
Although common logic might suggest the ease of bouncing from site to site on the Web would make it difficult for e-retailers to retain customers, the Boston Consulting Group's James Vogel says e-shoppers are loyal to sites that work well for them. With more and more potential customers venturing onto the Web, businesses are pulling out the stops in hopes of attracting and retaining customers; meaning good e-commerce deals will abound as the new marketplace is established.
Vogel: People will trust the stores that take them in and if you can be a trusted source that can be a huge win. So to the extent that you can expand and built on the relationship through that channel I think that will be a huge competitive advantage.
Major retailers push into the world of e-commerce is already beginning to call into question the great leveler notion of the World Wide Web, which had small companies jousting with on equal footing their large counter parts. The technology and money behind the development of e-commerce is causing it to evolve more quickly than any other retail channel thus far. And, observers say, given its accelerated life cycle, winners and losers will likely emerge relatively quickly.